A Lesson in anonymity: Bitcoin, Dash, Monero and Zcash

Bitcoin

In the beginning there was Bitcoin, an open source digital currency that allows us to make anonymous payments or transactions almost instantly and through an immutable public ledger known as the blockchain, that keeps track of every transaction ever made.

This is probably the way most people would describe Bitcoin, on a basic level. The problem is that these two concepts are contradictory; since every transaction is recorded on the blockchain, including sender, receiver and amount, Bitcoin can be the exact opposite of anonymous.

What makes us believe that bitcoin is anonymous is the fact that wallets are not connected to our names. They're simply a bunch of random characters that don’t mean anything, but our names are the exact same thing a bunch of characters that are used to identify ourselves, so in Bitcoin we give ourselves a complicated nickname or several complicated nicknames, making bitcoin a Pseudonymous cryptocurrency.

Our nicknames or wallet addresses can be, in most cases, easily traced back to the user, through IP addresses, transaction history, used service providers and so on. Specialists have also been known to be able to determine a lot about someone's identity by their transaction patterns, such as time zone, for example.

Tumblers or Mixers were introduced to deal with this traceability problem. A Mixer is basically a collective of people coming together, putting their coins on the table, shuffling them and then each individual takes back his specific amount from the random coin pile. Users can also set options like time delay in the mixture.

Tumblers are considered a “band aid over a stab wound” in the context of bitcoin, since they can still be traced trough careful analysis, and it requires users to trust their BTC with a third party service, which can steal your coins at any given time.

Mixers will also increase the possibility of a coin not being fungible, since a receiver can check that a coin came from a mixer, which may have coins with a record of criminal activity.

DASH